Puzzled

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  By Guest Blogger Doug Rowat

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The magazine above recently caught my attention. Apparently, I’m a sucker for irradiated, yellow-eyed wolves.

I might have also been drawn to the magazine’s “Win Big With Bitcoin in 2025” tagline.

The magazine was sealed (you can’t just give away money-making crypto secrets), so I don’t know specifically what those winning strategies were, but with bitcoin now negative y-t-d, it’s fair to say that most bitcoin investors probably haven’t been doing much winning this year.

But, who knows, perhaps now’s the time to invest in bitcoin because it certainly has a history of defying expectations and rallying strongly just when you think it’s down and out. However, my frustration with bitcoin hasn’t been its long-term performance (no one can dispute it’s been exceptional) or whether the occasional hotshot crypto trader can make a buck off of it—it’s instead been the ever-changing rationales that its supporters cite for investing in it.

Naturally, the primary and oldest argument is that it’s poised to become an alternative global currency. But any useful currency must provide stability. With bitcoin experiencing six collapses of 70% or greater over the past dozen years, bitcoin provides anything but stability. The drop from its October high alone is already more than 25%.

Further, when you buy bitcoin the expectation is that it will appreciate, at least that’s what the bitcoin advocates tell us. Therefore, if the expectation is that its price will soar, why would you ever use it to buy groceries, a vacation, a new barbecue, etc.? You pay for things in dollars because you never assume that when you do so there will be a huge opportunity cost. In other words, bitcoin, even after more than 15 years, still has little utility as a currency. In fact, in general, almost no one uses cryptocurrency to pay for anything, with payment and purchase usage actually declining since 2021:

Share of US consumers who use cryptocurrency

Source: US Federal Reserve

Another argument is that bitcoin’s a portfolio hedge. Bitcoin will zig when equity markets zag (the old gold-bullion argument). However, the correlation between both the Nasdaq Composite and the S&P 500 to bitcoin over the past decade has been exceptionally high (see table below).

In other words, it’s not really a hedge on equity markets at all. Certainly, bitcoin might enhance your performance when markets are doing well, but it also significantly adds to your downside risk when they’re not.

XBTUSD correlation to S&P 500 & Nasdaq Composite – past 10 years

Click to enlarge. Source: Bloomberg, Turner Investments. SPX = S&P 500, CCMP = Nasdaq Composite

And here’s where it’s worth returning to the volatility. Not many bitcoin ETFs have long trading histories, but the Purpose Bitcoin ETF is one of the oldest. Its objective is to track bitcoin (it directly holds it), so this isn’t a critique of the ETF’s structure or design, but the below chart highlights the kind of volatility that investors have had to endure while owning it. Versus the straightforward US-equity SPDR S&P 500 ETF, which itself is quite volatile, the risk is extraordinary:

Risk comparison – SPDR S&P 500 ETF Trust & Purpose Bitcoin ETF

Source: Bloomberg, Turner Investments. Standard deviation is a measure of an investment’s volatility. The higher the standard deviation the greater the risk.

Even the bitcoin scarcity argument puzzles me because bitcoin’s infinitely divisible and, related to that, competing cryptocurrencies emerge constantly. Gold, even after thousands of years, still has no meaningful precious-metal competitors. Further, there’s a relatively small cohort of 30 public companies that own a significant percentage of bitcoin (Fidelity pegs it at about 28%). The scarcity argument would be undermined if even a few of these holders started to unwind positions.

No doubt new arguments for owning bitcoin will be advanced and the investment rationale will pivot yet again. My readers won’t be shy about sharing these new arguments or defending the old ones (enter all the yellow-eyed crypto wolves). But any investment thesis that needs to be altered so frequently is probably on shaky ground.

So, where will bitcoin go from here? Beats me. I don’t understand it.

And if there’s one critical rule to follow when investing, it’s just that: if you don’t understand it, don’t own it.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/11/22/puzzled/